5 Things Every Borrower Should do to Expedite Their Loan Closing
One of the biggest complaints I hear about the real estate financing industry is how slow some lenders can be to close a deal. I have heard on occasion borrowers complain my team is not working quickly enough, or in other instances, borrowers will complain to us about other lenders they’ve worked with in the past who did not meet timely expectations. And while lenders are not exempt from human error, there are plenty of things a borrower could do to ensure their loan funds smoothly and quickly.
Here are some tips and considerations every borrower should know about if they want their next loan funding to move forward without delays.
Prepare your required documentation ahead of time.
When locking in rates and terms, or better yet when you are conducting your initial lender interviews to determine who’d be the right fit for your current loan scenario, be sure to ask what typical documentation will be required and get it consolidated right away. Required documentation will vary by lender but most will want to see paperwork substantiating your identification (including business entities you may be a member of), credit history , tax filings, income verification, and financial institution holdings, etc. Make sure to also check with your title officer on what documents may be required for close as well (discussed in greater detail below) including things like lien release waivers which most, if not all, title companies require on properties under construction or have been rehabbed in the past 90 days. The process of collecting lien release waivers can take some considerable time so be sure to factor that into your loan processing timelines.
PRO TIP: If you an experienced investor, start a Schedule of Real Estate and/or Project Experience document which can be updated after each new project or acquisition and shared with your lenders during the loan processing phase.
Clear title before loan documents can be prepared.
One of the biggest delays in loan closings, in my experience, is a borrower(s) not working to clear title in a timely fashion. This is a responsibility between the borrower(s) and the title officer; not the lender. Here are just a few of the exceptions on title that can cause delays:
- - Borrower statement of Identification (BID) completed by borrower as soon as possible and cleared from title.
- - Business entity documentation provided to title - for a sole proprietor or partnership, title will need, at minimum, your Operating Agreement and Certificate of Formation and for a corporation, you will need to provide the Articles of Incorporation and Certificate of Formation.
- - Payoff demands and authorizations for any mortgages, deeds, lines of credits, judgments, or other liens. Escrow agents cannot request these on a borrower’s behalf without authorization and account information.
PRO TIP: Overshare with your lender and title officer. Trying to hide those back property taxes or a judgment from 2017? We're gonna see it, so you might as well disclose it upfront. These types of title issues are not always a deal breaker but letting your loan officer know upfront will avoid any uncomfortable conversations later down the line.
Get your project financials organized.
If you are buying a fix and flip, you should have your project budget and schedule (or at minimum a high-level pro forma) created ahead of time. Not having concrete numbers prepared in advance just makes you look ill-prepared and can drag out your loan processing unnecessarily. Go one step further and have GC bids, property comparisons, and other documentation handy to reduce the amount of time a lender needs to do due diligence on your loan request.
PRO TIP: Bigger Pockets has a large selection of tools and resources to help you accomplish what you'll need to provide your lender and to conduct your own due diligence in advance.
Be accessible to your loan processor and/or loan officer throughout the entire loan process, not just when locking in your rates and terms.
You are a busy real estate investor, we get it. You juggle a lot of balls in the air and are handling a lot of different responsibilities and even multiple projects simultaneously. On that same note, so are your lenders. Waiting to respond to an email or voicemail for several days may move you down in loan pipeline priority because other investors are providing the documentation promptly to move their loans forward.
PRO TIP: If you are not going to be available for a local signing, let your lender and escrow closer know ASAP! Mobile notaries are almost always available no matter where you are in the country but some foreign locations are more difficult to manage than others and almost always add a few extra days (or more) to close.
Do your homework BEFORE selecting a lender to work with on your loan request.
One of the best ways borrowers can help get their loan funded on time is to conduct lender interviews in advance. Does your PSA have a 10-day close time? Quit rate shopping to find the cheapest lender who still needs you to complete a 3rd party BPO or appraisal. You likely will not be able to close on time. Need a lender who can do large assignments or ground up construction, figure out who those players are ahead of time. Not all lenders do the same type of loans and many specialize in certain areas of real estate investing. Knowing who can accommodate your current lending needs can be very helpful in reducing the time it takes to close your loan.
Part of your due diligence in selecting a lender to work with should also be to select your cross-functional financing team carefully, as well. So many borrowers do not realize the correlated responsibilities between lender, title company, the escrow closing team, and even their real estate brokers. But real estate financing is 100% a team sport. I have had some pretty stellar title and escrow experiences and quite a few poor ones as well. Sometimes the bad experience is related to the type of transaction being handled or just higher-than-normal volumes as of late, not just inefficient or inept closing agents, though I have experienced a few of those, too. For example, some closers will not close assignments, some title companies will not issue ALTA extended lender title policies, and some escrow companies will require a 2-3 day independent underwriting on all private or hard money lender loan documents.
While the latter examples are not very common, it’s better to find out those contingencies well in advance of a loan closing so you are not left panicking days before close. Better yet, work to establish and maintain good working relationships with your entire financing team so you have rock stars working on your behalf, even when you are not available. Repeat business with the same teams will also ensure many of the variables (and exceptions) are cleared and on file for the next transaction.
PRO TIP: Wondering what types of questions to ask your lender when conducting a phone interview? Check out this webinar I created with a hard money colleague a few years back.
Regardless of who funds your loan, realize you, as the investor, have an integral role in getting your loan across the finish line. Proactiveness, organization, and over-communication on your part (READ: not nagging your lender for status updates but rather sharing information and responding to questions in a timely manner) will help to ensure things move forward smoothly. Should delays occur that are outside of your control, at least you’ve done your part in helping to facilitate as seamless of a loan close as possible.